Google phone will rule market...

In iPhone's case, the exclusivity agreement goes far beyond the choice of service provider. Apple tightly controls the applications that are available for the phone through its iTunes store, and its decision to block a voice application from Google sparked an inquiry by the Federal Communications Commission (FCC).

How Google's phone would connect to wireless networks was not clear, and the company declined to comment on its plans beyond its blog posting. Apple also declined to comment.

But Google's latest plans appear to be aimed at countering that "closed loop" business model with a product that can run any application on any network.

"This is a replica of the open-versus-closed war of the IBM mainframe versus the Macintosh for the mobile space," said Tim Wu, a professor of law at Columbia University. "And Google is settling in for a long war here."

The diverging approaches of Google and Apple, however, touch upon several regulatory debates playing out at the FCC. The agency is reviewing wireless industry practices and examining roaming deals after rural carriers asked for help in forcing bigger providers to share their networks.

Industry experts say any attempt by a carrier to block Google's phone could raise questions about net neutrality in the wireless industry. The FCC is considering proposed new rules that would prevent internet service providers from blocking content. Wireless carriers have argued those rules shouldn't apply as strongly to them and that such rules shouldn't prevent carriers from blocking certain devices.

"It will be interesting to see if Google or other handset manufacturers raise concern that consumers might be blocked from using unlocked handsets," said Jason Oxman, senior vice-president, the Consumer Electronics Association, an Arlington, Virginia-based trade group.

Google's apparent approach is the standard practice in Europe, where customers typically pay higher upfront prices to buy phones but can carry them on any network at lower costs and without contract obligations. It's unclear how Google would price the phone, but industry experts say that if the company decides to charge more upfront for the phone, consumers may baulk.

"We're not starting with a clean slate here," said Larry Downes, a non-resident fellow at Stanford University Law School. "The question is, who will pay the subsidy?"

Carriers subsidise a large portion of the cost of a phone to attract customers to buy new gadgets. The iPhone, for example, is estimated to cost AT&T about $350 (Dh1,285) in subsidies in order to offer the device to consumer for $199. In return, it asks consumers to sign one-to-two-year contracts to ensure it recoups the costs of those subsidies. Such exclusive contracts have come under fire recently, with the FCC asking Verizon to explain why it recently increased its penalty for customers who leave contracts early. And even with the iPhone, its fastest version was initially priced at $599 in 2007 before AT&T began dropping the price.

"So this is a very, very different model, but if anyone can pull it off, it would be a Google, because of its brand awareness and ability to market it," Oxman said.